For-Profit Colleges
Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices Gao ID: GAO-10-948T August 4, 2010Enrollment in for-profit colleges has grown from about 365,000 students to almost 1.8 million in the last several years. These colleges offer degrees and certifications in programs ranging from business administration to cosmetology. In 2009, students at for-profit colleges received more than $4 billion in Pell Grants and more than $20 billion in federal loans provided by the Department of Education (Education). GAO was asked to 1) conduct undercover testing to determine if for-profit colleges' representatives engaged in fraudulent, deceptive, or otherwise questionable marketing practices, and 2) compare the tuitions of the for-profit colleges tested with those of other colleges in the same geographic region. To conduct this investigation, GAO investigators posing as prospective students applied for admissions at 15 for-profit colleges in 6 states and Washington, D.C.. The colleges were selected based on several factors, including those that the Department of Education reported received 89 percent or more of their revenue from federal student aid. GAO also entered information on four fictitious prospective students into education search Web sites to determine what type of follow-up contact resulted from an inquiry. GAO compared tuition for the 15 for-profit colleges tested with tuition for the same programs at other colleges located in the same geographic areas. Results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.
Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO's undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid--for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants' potential salary after graduation and failed to provide clear information about the college's program duration, costs, or graduation rate despite federal regulations requiring them to do so. For example, staff commonly told GAO's applicants they would attend classes for 12 months a year, but stated the annual cost of attendance for 9 months of classes, misleading applicants about the total cost of tuition. Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options. However, in some instances, undercover applicants were provided accurate and helpful information by college personnel, such as not to borrow more money than necessary. In addition, GAO's four fictitious prospective students received numerous, repetitive calls from for-profit colleges attempting to recruit the students when they registered with Web sites designed to link for-profit colleges with prospective students. Once registered, GAO's prospective students began receiving calls within 5 minutes. One fictitious prospective student received more than 180 phone calls in a month. Calls were received at all hours of the day, as late as 11 p.m. To see video clips of undercover applications and to hear voicemail messages from for-profit college recruiters, see http://www.gao.gov/products/GAO-10-948T. Programs at the for-profit colleges GAO tested cost substantially more for associate's degrees and certificates than comparable degrees and certificates at public colleges nearby. A student interested in a massage therapy certificate costing $14,000 at a for-profit college was told that the program was a good value. However the same certificate from a local community college cost $520. Costs at private nonprofit colleges were more comparable when similar degrees were offered.
GAO-10-948T, For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices
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Testimony:
Before the Committee on Health, Education, Labor, and Pensions, U.S.
Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Wednesday, August 4, 2010:
For-Profit Colleges:
Undercover Testing Finds Colleges Encouraged Fraud and Engaged in
Deceptive and Questionable Marketing Practices:
Statement of Gregory D. Kutz, Managing Director:
Forensic Audits and Special Investigations:
GAO-10-948T:
GAO Highlights:
Highlights of GAO-10-948T, a testimony before the Committee on Health,
Education, Labor, and Pensions, U.S. Senate.
Why GAO Did This Study:
Enrollment in for-profit colleges has grown from about 365,000
students to almost 1.8 million in the last several years. These
colleges offer degrees and certifications in programs ranging from
business administration to cosmetology. In 2009, students at for-
profit colleges received more than $4 billion in Pell Grants and more
than $20 billion in federal loans provided by the Department of
Education (Education). GAO was asked to 1) conduct undercover testing
to determine if for-profit colleges‘ representatives engaged in
fraudulent, deceptive, or otherwise questionable marketing practices,
and 2) compare the tuitions of the for-profit colleges tested with
those of other colleges in the same geographic region.
To conduct this investigation, GAO investigators posing as prospective
students applied for admissions at 15 for-profit colleges in 6 states
and Washington, D.C. The colleges were selected based on several
factors, including those that the Department of Education reported
received 89 percent or more of their revenue from federal student aid.
GAO also entered information on four fictitious prospective students
into education search Web sites to determine what type of follow-up
contact resulted from an inquiry. GAO compared tuition for the 15 for-
profit colleges tested with tuition for the same programs at other
colleges located in the same geographic areas. Results of the
undercover tests and tuition comparisons cannot be projected to all
for-profit colleges.
What GAO Found:
Undercover tests at 15 for-profit colleges found that 4 colleges
encouraged fraudulent practices and that all 15 made deceptive or
otherwise questionable statements to GAO‘s undercover applicants. Four
undercover applicants were encouraged by college personnel to falsify
their financial aid forms to qualify for federal aid”for example, one
admissions representative told an applicant to fraudulently remove
$250,000 in savings. Other college representatives exaggerated
undercover applicants‘ potential salary after graduation and failed to
provide clear information about the college‘s program duration, costs,
or graduation rate despite federal regulations requiring them to do
so. For example, staff commonly told GAO‘s applicants they would
attend classes for 12 months a year, but stated the annual cost of
attendance for 9 months of classes, misleading applicants about the
total cost of tuition. Admissions staff used other deceptive
practices, such as pressuring applicants to sign a contract for
enrollment before allowing them to speak to a financial advisor about
program cost and financing options. However, in some instances,
undercover applicants were provided accurate and helpful information
by college personnel, such as not to borrow more money than necessary.
Table: Fraudulent, Deceptive, and Otherwise Questionable Practices:
Degree/certificate, location: Certificate Program – California;
Sales and Marketing Practice: Undercover applicant was encouraged by a
college representative to change federal aid forms to falsely increase
the number of dependents in the household in order to qualify for
grants.
Degree/certificate, location: Associate‘s Degree – Florida;
Sales and Marketing Practice: Undercover applicant was falsely told
that the college was accredited by the same organization that
accredits Harvard and the University of Florida.
Degree/certificate, location: Certificate Program – Washington, D.C.
Sales and Marketing Practice: Admissions representative said that
barbers can earn up to $150,000 to $250,000 a year, an exceptional
figure for the industry. The Bureau of Labor Statistics reports that
90 percent of barbers make less than $43,000 a year.
Degree/certificate, location: Certificate Program – Florida;
Sales and Marketing Practice: Admission representative told an
undercover applicant that student loans were not like a car payment
and that no one would ’come after“ the applicant if she did not pay
back her loans.
Source: GAO.
[End of table]
In addition, GAO‘s four fictitious prospective students received
numerous, repetitive calls from for-profit colleges attempting to
recruit the students when they registered with Web sites designed to
link for-profit colleges with prospective students. Once registered,
GAO‘s prospective students began receiving calls within 5 minutes. One
fictitious prospective student received more than 180 phone calls in a
month. Calls were received at all hours of the day, as late as 11 p.m.
To see video clips of undercover applications and to hear voicemail
messages from for-profit college recruiters, see [hyperlink,
http://www.gao.gov/products/GAO-10-948T].
Programs at the for-profit colleges GAO tested cost substantially more
for associate‘s degrees and certificates than comparable degrees and
certificates at public colleges nearby. A student interested in a
massage therapy certificate costing $14,000 at a for-profit college
was told that the program was a good value. However the same
certificate from a local community college cost $520. Costs at private
nonprofit colleges were more comparable when similar degrees were
offered.
View [hyperlink, http://www.gao.gov/products/GAO-10-948T] or key
components. For more information, contact Gregory Kutz at (202) 512-
6722 or kutzg@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to discuss our investigation into
fraudulent, deceptive, or otherwise questionable sales and marketing
practices in the for-profit college industry.[Footnote 1] Across the
nation, about 2,000 for-profit colleges eligible to receive federal
student aid offer certifications and degrees in subjects such as
business administration, medical billing, psychology, and cosmetology.
Enrollment in such colleges has grown far faster than traditional
higher-education institutions. The for-profit colleges range from
small, privately owned colleges to colleges owned and operated by
publicly traded corporations. Fourteen such corporations, worth more
than $26 billion as of July 2010,[Footnote 2] have a total enrollment
of 1.4 million students. With 443,000 students, one for-profit college
is one of the largest higher-education systems in the country--
enrolling only 20,000 students fewer than the State University of New
York.
The Department of Education's Office of Federal Student Aid manages
and administers billions of dollars in student financial assistance
programs under Title IV of the Higher Education Act of 1965, as
amended. These programs include, among others, the William D. Ford
Federal Direct Loan Program (Direct Loans), the Federal Pell Grant
Program, and campus-based aid programs.[Footnote 3] Grants do not have
to be repaid by students, while loans must be repaid whether or not a
student completes a degree program. Students may be eligible for
"subsidized" loans or "unsubsidized" loans. For unsubsidized loans,
interest begins to accrue on the loan as soon as the loan is taken out
by the student (i.e. while attending classes). For subsidized loans,
interest does not accrue while a student is in college. Colleges
received $105 billion in Title IV funding for the 2008-2009 school
year--of which approximately 23 percent or $24 billion went to for-
profit colleges. Because of the billions of dollars in federal grants
and loans utilized by students attending for-profit colleges, you
asked us to (1) conduct undercover testing to determine if for-profit
college representatives engaged in fraudulent, deceptive, or otherwise
questionable marketing practices, and (2) compare the cost of
attending for-profit colleges tested with the cost of attending
nonprofit colleges in the same geographic region.
To determine whether for-profit college representatives engaged in
fraudulent, deceptive, or otherwise questionable sales and marketing
practices, we investigated a nonrepresentative selection of 15 for-
profit colleges located in Arizona, California, Florida, Illinois,
Pennsylvania, Texas, and Washington, D.C. We chose colleges based on
several factors in order to test for-profit colleges offering a
variety of educational services with varying corporate sizes and
structures located across the country. Factors included whether a
college received 89 percent or more of total revenue from federal
student aid according to Department of Education (Education) data or
was located in a state that was among the top 10 recipients of Title
IV funding. We also chose a mix of privately held or publicly traded
for-profit colleges. We reviewed Federal Trade Commission (FTC)
statutes and regulations regarding unfair and deceptive marketing
practices and Education statutes and regulations regarding what
information postsecondary colleges are required to provide to students
upon request and what constitutes substantial misrepresentation of
services. During our undercover tests we attempted to identify whether
colleges met these regulatory requirements, but we were not able to
test all regulatory requirements in all tests.
Using fictitious identities, we posed as potential students to meet
with the colleges' admissions and financial aid representatives and
inquire about certificate programs, associate's degrees, and
bachelor's degrees.[Footnote 4] We inquired about one degree type and
one major--such as cosmetology, massage therapy, construction
management, or elementary education--at each college. We tested each
college twice--once posing as a prospective student with an income low
enough to qualify for federal grants and subsidized student loans, and
once as a prospective student with higher income and assets to qualify
the student only for certain unsubsidized loans.[Footnote 5] Our
undercover applicants were ineligible for other types of federal
postsecondary education assistance programs such as benefits available
under the Post-9/11 Veterans Educational Assistance Act of 2008
(commonly referred to as "the Post-9/11 G.I. Bill"). We used
fabricated documentation, such as tax returns, created with publicly
available hardware, software and materials, and the Free Application
for Federal Student Aid (FAFSA)--the form used by virtually all 2-and
4-year colleges, universities, and career colleges for awarding
federal student aid--during our in-person meetings. In addition, using
additional bogus identities, investigators posing as four prospective
students filled out forms on two Web sites that ask questions about
students' academic interests, match them to colleges with relevant
programs, and provide the students' information to colleges or the
colleges' outsourced calling center for follow-up about enrollment.
Two students expressed interest in a culinary arts degree, and two
other students expressed interest in a business administration degree.
We filled out information on two Web sites with these fictitious
prospective students' contact information and educational interests in
order to document the type and frequency of contact the fictitious
prospective students would receive. We then monitored the phone calls
and voicemails received.
To compare the cost of attending for-profit colleges with that of
nonprofit colleges, we used Education information to select public and
private nonprofit colleges located in the same geographic areas as the
15 for-profit colleges we visited. We compared tuition rates for the
same type of degree or certificate between the for-profit and
nonprofit colleges. For the 15 for-profit colleges we visited, we used
information obtained from campus representatives to determine tuition
at these programs. For the nonprofit colleges, we obtained information
from their Web sites or, when not available publicly, from campus
representatives. Not all nonprofit colleges offered similar degrees,
specifically when comparing associate's degrees and certificate
programs. We cannot project the results of our undercover tests or
cost comparisons to other for-profit colleges.
We plan to refer cases of school officials encouraging fraud and
engaging in deceptive practices to Education's Office of Inspector
General, where appropriate. Our investigative work, conducted from May
2010 through July 2010, was performed in accordance with standards
prescribed by the Council of the Inspectors General on Integrity and
Efficiency.
Background:
In recent years, the scale and scope of for-profit colleges have
changed considerably. Traditionally focused on certificate and
programs ranging from cosmetology to medical assistance and business
administration, for-profit institutions have expanded their offerings
to include bachelor's, master's, and doctoral level programs. Both the
certificate and degree programs provide students with training for
careers in a variety of fields. Proponents of for-profit colleges
argue that they offer certain flexibilities that traditional
universities cannot, such as, online courses, flexible meeting times,
and year-round courses. Moreover, for-profit colleges often have open
admissions policies to accept any student who applies.
Currently, according to Education about 2,000 for-profit colleges
participate in Title IV programs and in the 2008-2009 school year, for-
profit colleges received approximately $24 billion in Title IV funds.
Students can only receive Title IV funds when they attend colleges
approved by Education to participate in the Title IV program.
Title IV Program Eligibility Criteria:
The Higher Education Act of 1965, as amended, provides that a variety
of institutions of higher education are eligible to participate in
Title IV programs, including:
* Public institutions--Institutions operated and funded by state or
local governments, which include state universities and community
colleges.
* Private nonprofit institutions--Institutions owned and operated by
nonprofit organizations whose net earnings do not benefit any
shareholder or individual. These institutions are eligible for tax-
deductible contributions in accordance with the Internal Revenue code
(26 U.S.C. § 501(c)(3)).
* For-profit institutions--Institutions that are privately owned or
owned by a publicly traded company and whose net earnings can benefit
a shareholder or individual.
Colleges must meet certain requirements to receive Title IV funds.
While full requirements differ depending on the type of college, most
colleges are required to: be authorized or licensed by the state in
which it is located to provide higher education; provide at least one
eligible program that provides an associate's degree or higher, or
provides training to students for employment in a recognized
occupation; and be accredited by an accrediting agency recognized by
the Secretary of Education. Moreover, for-profit colleges must enter a
"program participation agreement" with Education that requires the
school to derive not less than 10 percent of revenues from sources
other than Title IV funds and certain other federal programs (known as
the "90/10 Rule"). Student eligibility for grants and subsidized
student loans is based on student financial need. In addition, in
order for a student to be eligible for Title IV funds, the college
must ensure that the student meets the following requirements, among
others: has a high school diploma, a General Education Development
certification, or passes an ability-to-benefit test approved by
Education, or completes a secondary school education in a home school
setting recognized as such under state law; is working toward a degree
or certificate in an eligible program; and is maintaining satisfactory
academic progress once in college.[Footnote 6]
Defaults on Student Loans:
In August 2009, GAO reported that in the repayment period, students
who attended for-profit colleges were more likely to default on
federal student loans than were students from other colleges.
[Footnote 7] When students do not make payments on their federal loans
and the loans are in default, the federal government and taxpayers
assume nearly all the risk and are left with the costs. For example,
in the Direct Loan program, the federal government and taxpayers pick
up 100 percent of the unpaid principal on defaulted loans. In
addition, students who default are also at risk of facing a number of
personal and financial burdens. For example, defaulted loans will
appear on the student's credit record, which may make it more
difficult to obtain an auto loan, mortgage, or credit card. Students
will also be ineligible for assistance under most federal loan
programs and may not receive any additional Title IV federal student
aid until the loan is repaid in full. Furthermore, Education can refer
defaulted student loan debts to the Department of Treasury to offset
any federal or state income tax refunds due to the borrower to repay
the defaulted loan. In addition, Education may require employers who
employ individuals who have defaulted on a student loan to deduct 15
percent of the borrower's disposable pay toward repayment of the debt.
Garnishment may continue until the entire balance of the outstanding
loan is paid.
College Disclosure Requirements:
In order to be an educational institution that is eligible to receive
Title IV funds, Education statutes and regulations require that each
institution make certain information readily available upon request to
enrolled and prospective students.[Footnote 8] Institutions may
satisfy their disclosure requirements by posting the information on
their Internet Web sites. Information to be provided includes:
tuition, fees, and other estimated costs; the institution's refund
policy; the requirements and procedures for withdrawing from the
institution; a summary of the requirements for the return of Title IV
grant or loan assistance funds; the institution's accreditation
information; and the institution's completion or graduation rate. If a
college substantially misrepresents information to students, a fine of
no more than $25,000 may be imposed for each violation or
misrepresentation and their Title IV eligibility status may be
suspended or terminated.[Footnote 9] In addition, the FTC prohibits
"unfair methods of competition" and "unfair or deceptive acts or
practices" that affect interstate commerce.
For-Profit Colleges Encouraged Fraud and Engaged in Deceptive and
Otherwise Questionable Sales and Marketing Practices:
Our covert testing at 15 for-profit colleges found that four colleges
encouraged fraudulent practices, such as encouraging students to
submit false information about their financial status. In addition all
15 colleges made some type of deceptive or otherwise questionable
statement to undercover applicants, such as misrepresenting the
applicant's likely salary after graduation and not providing clear
information about the college's graduation rate. Other times our
undercover applicants were provided accurate or helpful information by
campus admissions and financial aid representatives. Selected video
clips of our undercover tests can be seen at [hyperlink,
http://www.gao.gov/products/GAO-10-948T].
Fraudulent Practices Encouraged by For-Profit Colleges:
Four of the 15 colleges we visited encouraged our undercover
applicants to falsify their FAFSA in order to qualify for financial
aid. A financial aid officer at a privately owned college in Texas
told our undercover applicant not to report $250,000 in savings,
stating that it was not the government's business how much money the
undercover applicant had in a bank account. However, Education
requires students to report such assets, which along with income, are
used to determine how much and what type of financial aid for which a
student is eligible. The admissions representative at this same school
encouraged the undercover applicant to change the FAFSA to falsely add
dependents in order to qualify for grants. The admissions
representative attempted to ease the undercover applicant's concerns
about committing fraud by stating that information about the reported
dependents, such as Social Security numbers, was not required. An
admissions representative at another college told our undercover
applicant that changing the FAFSA to indicate that he supported three
dependents instead of being a single-person household might drop his
income enough to qualify for a Pell Grant. In all four situations when
college representatives encouraged our undercover applicants to commit
fraud, the applicants indicated on their FAFSA, as well as to the for-
profit college staff, that they had just come into an inheritance
worth approximately $250,000. This inheritance was sufficient to pay
for the entire cost of the undercover applicant's tuition. However, in
all four cases, campus representatives encouraged the undercover
applicants to take out loans and assisted them in becoming eligible
either for grants or subsidized loans. It was unclear what incentive
these colleges had to encourage our undercover applicants to
fraudulently fill out financial aid forms given the applicants'
ability to pay for college. The following table provides more details
on the four colleges involved in encouraging fraudulent activity.
Table 1: Fraudulent Actions Encouraged by For-Profit Colleges:
Location: California;
Certification Sought and Course of Study: Certificate - Computer Aided
Drafting;
Type of College: Less than 2-year, privately owned;
Fraudulent Behavior Encouraged:
* Undercover applicant was encouraged by a financial aid
representative to change the FAFSA to falsely increase the number of
dependents in the household in order to qualify for Pell Grants;
* The representative told the undercover applicant that by the time
the college would be required by Education to verify any information
about the applicant, the applicant would have already graduated from
the 7-month program;
* This undercover applicant indicated to the financial aid
representative that he had $250,000 in the bank, and was therefore
capable of paying the program's $15,000 cost. The fraud would have
made the applicant eligible for grants and subsidized loans.
Location: Florida;
Certification Sought and Course of Study: Associate's Degree -
Radiologic Technology;
Type of College: 2-year, privately owned;
Fraudulent Behavior Encouraged:
* Financial aid representative suggested to the undercover applicant
that he not report $250,000 in savings reported on the FAFSA. The
representative told the applicant to come back once the fraudulent
financial information changes had been processed;
* This change would not have made the applicant eligible for grants
because his income would have been too high, but it would have made
him eligible for loans subsidized by the government. However, this
undercover applicant indicated that he had $250,000 in savings--more
than enough to pay for the program's $39,000 costs.
Location: Pennsylvania;
Certification Sought and Course of Study: Certificate - Web Page
Design;
Type of College: Less than 2-year, privately owned;
Fraudulent Behavior Encouraged:
* Financial aid representative told the undercover applicant that he
should have answered "zero" when asked about money he had in savings--
the applicant had reported a $250,000 inheritance;
* The financial aid representative told the undercover applicant that
she would "correct" his FAFSA form by reducing the reported assets to
zero. She later confirmed by email and voicemail that she had made the
change;
* This change would not have made the applicant eligible for grants,
but it would have made him eligible for loans subsidized by the
government. However, this applicant indicated that he had about
$250,000 in savings--more than enough to pay for the program's $21,000
costs.
Location: Texas;
Certification Sought and Course of Study: Bachelor's Degree -
Construction Management;
Type of College: 4-year, privately owned;
Fraudulent Behavior Encouraged:
* Admissions representative encouraged applicant to change the FAFSA
to falsely add dependents in order to qualify for Pell Grants;
* Admissions representative assured the undercover applicant that he
did not have to identify anything about the dependents, such as their
Social Security numbers, nor did he have to prove to the college with
a tax return that he had previously claimed them as dependents;
* Financial aid representative told the undercover applicant that he
should not report the $250,000 in cash he had in savings;
* This applicant indicated to the financial aid representative that he
had $250,000 in the bank, and was therefore capable of paying the
program's $68,000 cost. The fraud would have made the undercover
applicant eligible for more than $2,000 in grants per year.
Source: GAO.
[End of table]
Deceptive or Questionable Statements:
Admissions or financial aid representatives at all 15 for-profit
colleges provided our undercover applicants with deceptive or
otherwise questionable statements. These deceptive and questionable
statements included information about the college's accreditation,
graduation rates and its student's prospective employment and salary
qualifications, duration and cost of the program, or financial aid.
Representatives at schools also employed hard-sell sales and marketing
techniques to encourage students to enroll.
Accreditation Information:
Admissions representatives at four colleges either misidentified or
failed to identify their colleges' accrediting organizations. While
all the for-profit colleges we visited were accredited according to
information available from Education, federal regulations state that
institutions may not provide students with false, erroneous, or
misleading statements concerning the particular type, specific source,
or the nature and extent of its accreditation. Examples include:
* A representative at a college in Florida owned by a publicly traded
company told an undercover applicant that the college was accredited
by the same organization that accredits Harvard and the University of
Florida when in fact it was not. The representative told the
undercover applicant: "It's the top accrediting agency--Harvard,
University of Florida--they all use that accrediting agency—.All
schools are the same; you never read the papers from the schools."
* A representative of a small beauty college in Washington, D.C. told
an undercover applicant that the college was accredited by "an agency
affiliated with the government," but did not specifically name the
accrediting body. Federal and state government agencies do not
accredit educational institutions.
* A representative of a college in California owned by a private
corporation told an undercover applicant that this college was the
only one to receive its accrediting organization's "School of
Excellence" award. The accrediting organization's Web site listed 35
colleges as having received that award.
Graduation Rate, Employment and Expected Salaries:
Representatives from 13 colleges gave our applicants deceptive or
otherwise questionable information about graduation rates, guaranteed
applicants jobs upon graduation, or exaggerated likely earnings.
Federal statutes and regulations require that colleges disclose the
graduation rate to applicants upon request, although this requirement
can be satisfied by posting the information on their Web site.
Representatives at 13 colleges did not provide applicants with
accurate or complete information about graduation rates. Of these
thirteen, four provided graduation rate information in some form on
their Web site, although it required a considerable amount of
searching to locate the information. Nine schools did not provide
graduation rates either during our in person visit or on their Web
sites. For example, when asked for the graduation rate, a
representative at a college in Arizona owned by a publicly traded
company said that last year 90 students graduated, but did not
disclose the actual graduation rate. When our undercover applicant
asked about graduation rates at a college in Pennsylvania owned by a
publicly traded company, he was told that if all work was completed,
then the applicant should successfully complete the program--again the
representative failed to disclose the college's graduation rate when
asked. However, because graduation rate information was available at
both these colleges' Web sites, the colleges were in compliance with
Education regulations.
In addition, according to federal regulations, a college may not
misrepresent the employability of its graduates, including the
college's ability to secure its graduates employment. However,
representatives at two colleges told our undercover applicants that
they were guaranteed or virtually guaranteed employment upon
completion of the program. At five colleges, our undercover applicants
were given potentially deceptive information about prospective
salaries. Examples of deceptive or otherwise questionable information
told to our undercover applicants included:
* A college owned by a publicly traded company told our applicant
that, after completing an associate's degree in criminal justice, he
could try to go work for the Federal Bureau of Investigation or the
Central Intelligence Agency. While other careers within those agencies
may be possible, positions as a FBI Special Agent or CIA Clandestine
Officer, require a bachelor's degree at a minimum.
* A small beauty college told our applicant that barbers can earn
$150,000 to $250,000 a year. While this may be true in exceptional
circumstances, the Bureau of Labor Statistics (BLS) reports that 90
percent of barbers make less than $43,000 a year.
* A college owned by a publicly traded company told our applicant that
instead of obtaining a criminal justice associate's degree, she should
consider a medical assisting certificate and that after only 9 months
of college, she could earn up to $68,000 a year. A salary this high
would be extremely unusual; 90 percent of all people working in this
field make less than $40,000 a year, according to the BLS.
Program Duration and Cost:
Representatives from nine colleges gave our undercover applicants
deceptive or otherwise questionable information about the duration or
cost of their colleges' programs. According to federal regulations, a
college may not substantially misrepresent the total cost of an
academic program. Representatives at these colleges used two different
methods to calculate program duration and cost of attendance. Colleges
described the duration of the program as if students would attend
classes for 12 months per year, but reported the annual cost of
attendance for only 9 months of classes per year. This disguises the
program's total cost. Examples include:
* A representative at one college said it would take 3.5-4 years to
obtain a bachelor's degree by taking classes year round, but quoted
the applicant an annual cost for attending classes for 9 months of the
year. She did not explain that attending classes for only 9 months out
of the year would require an additional year to complete the program.
If the applicant did complete the degree in 4 years, the annual cost
would be higher than quoted to reflect the extra class time required
per year.
* At another college, the representative quoted our undercover
applicant an annual cost of around $12,000 per year and said it would
take 2 years to graduate without breaks, but when asked about the
total cost, the representative told our undercover applicant it would
cost $30,000 to complete the program--equivalent to more than two and
a half years of the previously quoted amount. If the undercover
applicant had not inquired about the total cost of the program, she
would have been led to believe that the total cost to obtain the
associate's degree would have been $24,000.
Financial Aid:
Eleven colleges denied undercover applicants access to their financial
aid eligibility or provided questionable financial advice. According
to federal statutes and regulations, colleges must make information on
financial assistance programs available to all current and prospective
students.
* Six colleges in four states told our undercover applicants that they
could not speak with financial aid representatives or find out what
grants and loans they were eligible to receive until they completed
the college's enrollment forms agreeing to become a student and paid a
small application fee to enroll.
* A representative at one college in Florida owned by a publicly
traded company advised our undercover applicant not to concern himself
with loan repayment because his future salary--he was assured--would
be sufficient to repay loans.
* A representative at one college in Florida owned by a private
company told our undercover applicant that student loans were not like
car loans because "no one will come after you if you don't pay." In
reality, students who cannot pay their loans face fees, may damage
their credit, have difficulty taking out future loans, and in most
cases, bankruptcy law prohibits a student borrower from discharging a
student loan.
* A representative at a college owned by a publicly traded corporation
told our undercover applicant that she should take out the maximum
amount of federal loans she could, even if she did not need all the
money. She told the applicant she should put the extra money in a high-
interest savings account. While subsidized loans do not accrue
interest while a student is in college, unsubsidized loans do accrue
interest. The representative did not disclose this distinction to the
applicant when explaining that she should put the money in a savings
account.
Other Sales and Marketing Tactics:
Six colleges engaged in other questionable sales and marketing tactics
such as employing hard-sell sales and marketing techniques and
requiring enrolled students to pay monthly installments to the college
during their education.
* At one Florida college owned by a publicly traded company, a
representative told our undercover applicant she needed to answer 18
questions correctly on a 50 question test to be accepted to the
college. The test proctor sat with her in the room and coached her
during the test.
* At two other colleges, our undercover applicants were allowed 20
minutes to complete a 12-minute test or took the test twice to get a
higher score.
* At the same Florida college, multiple representatives used high
pressure marketing techniques, becoming argumentative, and scolding
our undercover applicants for refusing to enroll before speaking with
financial aid.
* A representative at this Florida college encouraged our undercover
applicant to sign an enrollment agreement while assuring her that the
contract was not legally binding.
* A representative at another college in Florida owned by a publicly
traded company said that he personally had taken out over $85,000 in
loans to pay for his degree, but he told our undercover applicant that
he probably would not pay it back because he had a "tomorrow's never
promised" philosophy.
* Three colleges required undercover applicants to make $20-$150
monthly payments once enrolled, despite the fact that students are
typically not required to repay loans until after the student finishes
or drops out of the program. These colleges gave different reasons for
why students were required to make these payments and were sometimes
unclear exactly what these payments were for. At one college, the
applicant would have been eligible for enough grants and loans to
cover the annual cost of tuition, but was told that she needed to make
progress payments toward the cost of the degree separate from the
money she would receive from loans and grants. A representative from
this college told the undercover applicant that the federal
government's "90/10 Rule" required the applicant to make these
payments. However, the "90/10 Rule" does not place any requirements on
students, only on the college.
* At two colleges, our undercover applicants were told that if they
recruited other students, they could earn rewards, such as an MP3
player or a gift card to a local store.[Footnote 10]
Accurate and Helpful Information Provided:
In some instances our undercover applicants were provided accurate or
helpful information by campus admissions and financial aid
representatives. In line with federal regulations, undercover
applicants at several colleges were provided accurate information
about the transferability of credits to other postsecondary
institutions, for example:
* A representative at a college owned by a publicly traded company in
Pennsylvania told our applicant that with regard to the transfer of
credits, "different schools treat it differently; you have to roll the
dice and hope it transfers."
* A representative at a privately owned for-profit college in
Washington, D.C. told our undercover applicant that the transfer of
credits depends on the college the applicant wanted to transfer to.
Some financial aid counselors cautioned undercover applicants not to
take out more loans than necessary or provided accurate information
about what the applicant was required to report on his FAFSA, for
example:
* One financial aid counselor at a privately owned college in
Washington D.C. told an applicant that because the money had to be
paid back, the applicant should be cautious about taking out more debt
than necessary.
* A financial aid counselor at a college in Arizona owned by a
publicly traded company had the undercover applicant call the FAFSA
help line to have him ask whether he was required to report his
$250,000 inheritance. When the FAFSA help line representative told the
undercover applicant that it had to be reported, the college financial
aid representative did not encourage the applicant not to report the
money.
In addition, some admissions or career placement staff gave undercover
applicants reasonable information about prospective salaries and
potential for employment, for example:
* Several undercover applicants were provided salary information
obtained from the BLS or were encouraged to research salaries in their
prospective fields using the BLS Web site.
* A career services representative at a privately owned for-profit
college in Pennsylvania told an applicant that as an entry level
graphic designer, he could expect to earn $10-$15 per hour. According
to the BLS only 25 percent of graphic designers earn less than $15 per
hour in Pennsylvania.
Web Site Inquiries Result in Hundreds of Calls:
Some Web sites that claim to match students with colleges are in
reality lead generators used by many for-profit colleges to market to
prospective students. Though such Web sites may be useful for students
searching for schools in some cases, our undercover tests involving
four fictitious prospective students led to a flood of calls--about
five a day. Four of our prospective students filled out forms on two
Web sites, which ask questions about students' interests, match them
to for-profit colleges with relevant programs, and provide the
students' information to the appropriate college or the college's
outsourced calling center for follow-up about enrollment. Two
fictitious prospective students expressed interest in a culinary arts
certificate, one on Web site A and one on Web site B. Two other
prospective students expressed interest in a bachelor's in business
administration degree, one on each Web site.
Within minutes of filling out forms, three prospective students
received numerous phone calls from colleges. One fictitious
prospective student received a phone call about enrollment within 5
minutes of registering and another 5 phone calls within the hour.
Another prospective student received 2 phone calls separated only by
seconds within the first 5 minutes of registering and another 3 phone
calls within the hour. Within a month of using the Web sites, one
student interested in business management received 182 phone calls and
another student also interested in business management received 179
phone calls. The two students interested in culinary arts programs
received fewer calls--one student received only a handful, while the
other received 72. In total, the four students received 436 phone
calls in the first 30 days after using the Web sites. Of these, only
six calls--all from the same college--came from a public college.
[Footnote 11] The table below provides information about the calls
these students received within the first 30 days of registering at the
Web site.
Table 2: Telephone Calls Received as a Result of Web site Inquiries:
Student: 1;
Student's Location: Georgia;
Web Site Student Used: A;
Degree: Business Administration;
Number of Calls Received Within 24 Hours of Registering: 21;
Most Calls Received in One Day[A]: 19;
Total Number of Calls Received in a Month: 179.
Student: 2;
Student's Location: California;
Web Site Student Used: B;
Degree: Business Administration;
Number of Calls Received Within 24 Hours of Registering: 24;
Most Calls Received in One Day[A]: 18;
Total Number of Calls Received in a Month: 182.
Student: 3;
Student's Location: Maryland;
Web Site Student Used: A;
Degree: Culinary Arts;
Number of Calls Received Within 24 Hours of Registering: 5;
Most Calls Received in One Day[A]: 8;
Total Number of Calls Received in a Month: 72.
Student: 4;
Student's Location: Nevada;
Web Site Student Used: B;
Degree: Culinary Arts;
Number of Calls Received Within 24 Hours of Registering: 2;
Most Calls Received in One Day[A]: 1;
Total Number of Calls Received in a Month: 3.
Source: GAO:
[A] This number is based on the number of calls received within the
first month of registering but does not include the first 24 hours.
[End of table]
Tuition at For-Profit Colleges Is Sometimes Higher Than Tuition at
Nearby Public and Private Nonprofit Colleges:
During the course of our undercover applications, some college
representatives told our applicants that their programs were a good
value. For example, a representative of a privately owned for-profit
college in California told our undercover applicant that the $14,495
cost of tuition for a computer-aided drafting certificate was "really
low." A representative at a for-profit college in Florida owned by a
publicly traded company told our undercover applicant that the cost of
their associate's degree in criminal justice was definitely "worth the
investment". However, based on information we obtained from for-profit
colleges we tested, and public and private nonprofit colleges in the
same geographic region, we found that most certificate or associate's
degree programs at the for-profit colleges we tested cost more than
similar degrees at public or private nonprofit colleges. We found that
bachelor's degrees obtained at the for-profit colleges we tested
frequently cost more than similar degrees at public colleges in the
area; however, bachelor's degrees obtained at private nonprofit
colleges nearby are often more expensive than at the for-profit
colleges.
We compared the cost of tuition at the 15 for-profit colleges we
visited, with public and private non-profit colleges located in the
same geographic area as the for-profit college. We found that tuition
in 14 out of 15 cases, regardless of degree, was more expensive at the
for-profit college than at the closest public colleges. For 6 of the
15 for-profit colleges tested, we could not find a private nonprofit
college located within 250 miles that offered a similar degree. For 1
of the 15, representatives from the private nonprofit college were
unwilling to disclose their tuition rates when we inquired. At eight
of the private nonprofit colleges for which we were able to obtain
tuition information on a comparable degree, four of the for-profit
colleges were more expensive than the private nonprofit college. In
the other four cases, the private nonprofit college was more expensive
than the for-profit college.
We found that tuition for certificates at for-profit colleges were
often significantly more expensive than at a nearby public college.
For example, our undercover applicant would have paid $13,945 for a
certificate in computer aided drafting program--a certification for a
7-month program obtained by those interested in computer-aided
drafting, architecture, and engineering--at the for-profit college we
visited. To obtain a certificate in computed-aided drafting at a
nearby public college would have cost a student $520. However, for two
of the five colleges we visited with certificate programs, we could
not locate a private nonprofit college within a 250 mile radius and
another one of them would not disclose its tuition rate to us. We were
able to determine that in Illinois, a student would spend $11,995 on a
medical assisting certificate at a for-profit college, $9,307 on the
same certificate at the closest private nonprofit college, and $3,990
at the closest public college. We were also able to determine that in
Pennsylvania, a student would spend $21,250 on a certificate in Web
page design at a for-profit college, $4,750 on the same certificate at
the closest private nonprofit college, and $2,037 at the closest
public college.
We also found that for the five associate's degrees we were interested
in, tuition at a for-profit college was significantly more than
tuition at the closest public college. On average, for the five
colleges we visited, it cost between 6 and 13 times more to attend the
for-profit college to obtain an associate's degree than a public
college. For example, in Texas, our undercover applicant was
interested in an associate's degree in respiratory therapy which would
have cost $38,995 in tuition at the for-profit college and $2,952 at
the closest public college. For three of the associate's degrees we
were interested in, there was not private nonprofit college located
within 250 miles of the for-profit we visited. We found that in
Florida the associate's degree in Criminal Justice that would have
cost a student $4,448 at a public college, would have cost the student
$26,936 at a for-profit college or $27,600 at a private nonprofit
college--roughly the same amount. In Texas, the associate's degree in
Business Administration would have cost a student $2,870 at a public
college, $32,665 at the for-profit college we visited, and $28,830 at
the closest private nonprofit college.
We found that with respect to the bachelor's degrees we were
interested in, four out of five times, the degree was more expensive
to obtain at the for-profit college than the public college. For
example in Washington, D.C., the bachelor's degree in Management
Information Systems would have cost $53,400 at the for-profit college,
and $51,544 at the closest public college. The same bachelor's degree
would have cost $144,720 at the closest private nonprofit college. For
one bachelor's degree, there was no private nonprofit college offering
the degree within a 250 mile radius. Three of the four private
nonprofit colleges were more expensive than their for-profit
counterparts.
Table 3: Program Total Tuition Rates:
Degree: Certificate - Computer-aided drafting;
Location: California;
For-Profit College Tuition: $13,945;
Public College Tuition: $520;
Private Nonprofit College Tuition: College would not disclose.
Degree: Certificate - Massage Therapy;
Location: California;
For-Profit College Tuition: $14,487;
Public College Tuition: $520;
Private Nonprofit College Tuition: No college within 250 miles.
Degree: Certificate - Cosmetology;
Location: District of Columbia;
For-Profit College Tuition: $11,500;
Public College Tuition: $9,375;
Private Nonprofit College Tuition: No college within 250 miles.
Degree: Certificate - Medical Assistant;
Location: Illinois;
For-Profit College Tuition: $11,995;
Public College Tuition: $3,990;
Private Nonprofit College Tuition: $9,307.
Degree: Certificate - Web Page Design;
Location: Pennsylvania;
For-Profit College Tuition: $21,250;
Public College Tuition: $2,037;
Private Nonprofit College Tuition: $4,750.
Degree: Associate's - Paralegal;
Location: Arizona;
For-Profit College Tuition: $30,048;
Public College Tuition: $4,544;
Private Nonprofit College Tuition: No college within 250 miles.
Degree: Associate's - Radiation Therapy;
Location: Florida;
For-Profit College Tuition: $38,690;
Public College Tuition: $5,621;
Private Nonprofit College Tuition: No college within 250 miles.
Degree: Associate's - Criminal Justice;
Location: Florida;
For-Profit College Tuition: $26,936;
Public College Tuition: $4,448;
Private Nonprofit College Tuition: $27,600.
Degree: Associate's - Business Administration;
Location: Texas;
For-Profit College Tuition: $32,665;
Public College Tuition: $2,870;
Private Nonprofit College Tuition: $28,830.
Degree: Associate's - Respiratory Therapist;
Location: Texas;
For-Profit College Tuition: $38,995;
Public College Tuition: $2,952;
Private Nonprofit College Tuition: No college within 250 miles.
Degree: Bachelor's - Management Information Systems;
Location: District of Columbia;
For-Profit College Tuition: $53,400;
Public College Tuition: $51,544;
Private Nonprofit College Tuition: $144,720.
Degree: Bachelor's - Elementary Education;
Location: Arizona;
For-Profit College Tuition: $46,200;
Public College Tuition: $31,176;
Private Nonprofit College Tuition: $28,160.
Degree: Bachelor's - Psychology;
Location: Illinois;
For-Profit College Tuition: $61,200;
Public College Tuition: $36,536;
Private Nonprofit College Tuition: $66,960.
Degree: Bachelor's - Business Administration;
Location: Pennsylvania;
For-Profit College Tuition: $49,200;
Public College Tuition: $49,292;
Private Nonprofit College Tuition: $124,696.
Degree: Bachelor's - Construction Management;
Location: Texas;
For-Profit College Tuition: $65,338;
Public College Tuition: $25,288;
Private Nonprofit College Tuition: No college within 250 miles.
Source: Information obtained from for-profit colleges admissions
employees and nonprofit college web sites or employees.
Note: These costs do not include books or supplies, unless the college
gave the undercover applicant a flat rate to attend the for-profit
college, which was inclusive of books, in which case we were not able
to separate the cost of books and supplies.
[End of table]
Mr. Chairman, this concludes my statement. I would be pleased to
answer any questions that you or other members of the committee may
have at this time.
Contacts and Acknowledgments:
For additional information about this testimony, please contact
Gregory D. Kutz at (202) 512-6722 or kutzg@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this statement.
[End of section]
Appendix I: Detailed Results of Undercover Tests:
The following table provides details on each of the 15 for-profit
colleges visited by undercover applicants. We visited each school
twice, posing once as an applicant who was eligible to receive both
grants and loans (Scenario 1), and once as an applicant with a salary
and savings that would qualify the undercover applicant only for
unsubsidized loans (Scenario 2).
College information and degree sought: Arizona - 4-year, owned by
publicly traded company; Bachelor's - Education;
Students receiving Pell Grants[A]: 27%;
Students receiving federal loans[A]: 39%;
Graduation rate[A]: 15%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative compares the college to the University of
Arizona and Arizona State University;
* Admissions representative did not disclose the graduation rate after
being directly asked. He provided information on how many students
graduated. This information was available on the college's Web site;
however, it required significant effort to find the college's
graduation rate, and the college did not provide separate graduation
rates for its multiple campuses nationwide;
* Admissions representative says that he does not know the job
placement rate because a lot of students moved out of the area;
* Admissions representative encourages undercover applicant to
continue on with a master's degree after finishing with the
bachelor's, explaining that some countries pay teachers more than they
do doctors and lawyers;
Scenario 2:
* Admissions representative said the bachelor's degree would take a
maximum of 4 years to complete, but she provided a 1-year cost
estimate equal to 1/5 of the required credit hours;
* According to the admissions representative the undercover applicant
was qualified for $9,500 in student loans, and the representative said
that the applicant should take out the full amount even though the
applicant stated that he had $250,000 in savings. Admissions
representative told the undercover applicant that the graduation rate
is 20 percent. Education reports that it is 15 percent.
College information and degree sought: Arizona - 4-year, owned by
publicly traded company; Associate's Degree - Paralegal;
Students receiving Pell Grants[A]: 57%;
Students receiving federal loans[A]: 83%;
Graduation rate[A]: Not reported;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 2:
* Financial aid representative estimated federal aid eligibility
without the undercover applicant's reported $250,000 in savings to see
if applicant qualified for more financial aid. The representative
informed the applicant he was ineligible for any grants;
* Admissions representative misrepresented the length of the program
by telling the undercover applicant that the 96 credit hour program
would take 2 years to complete. However, she only provided the
applicant a first year cost estimate for 36 credit hours. At this rate
it would take more than 2.5 years to complete.
College information and degree sought: California - less than 2-year,
privately owned; Certificate - Computer Aided Drafting;
Students receiving Pell Grants[A]: 94%;
Students receiving federal loans[A]: 96%;
Graduation rate[A]: 84%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* The admissions representative told the undercover applicant that if
she failed to pass the college's required assessment test, she can
continue to take different tests until she passes;
* The admissions representative did not tell the graduation rate when
asked directly. Instead, she stated many students have graduated from
the program recently. The college's Web site also did not provide the
graduation rate;
* Undercover applicant was required to take a 12-minute admittance
test but was given over 20 minutes because the test proctor was not
monitoring the student;
Scenario 2:
* Undercover applicant was encouraged by a financial aid
representative to change the FAFSA to falsely increase the number of
dependents in the household in order to qualify for a Pell Grant;
* The financial aid representative was aware of the undercover
applicant's inheritance and suggested he take out the maximum in
student loans;
* The career representative told the undercover applicant that getting
a job is a "piece of cake" and then told the applicant that she has
graduates making $120,000 - $130,000 a year. This is likely the
exception; according to the BLS 90 percent of architectural and civil
drafters make less than $70,000 per year.
College information and degree sought: California - 2-year, owned by
publicly traded company; Certificate - Massage Therapy;
Students receiving Pell Grants[A]: 73%;
Students receiving federal loans[A]: 83%;
Graduation rate[A]: 66%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* The financial aid representative would not discuss the undercover
applicant's eligibility for grants and loans and required the
applicant to return on another day;
Scenario 2:
* Undercover applicant was told that he could earn up to $100 an hour
as a massage therapist. While this may be possible, according to the
BLS, 90 percent of all massage therapists in California make less than
$34 per hour.
College information and degree sought: District of Columbia - 4-year,
privately owned; Bachelor's Degree - Business Information Systems;
Students receiving Pell Grants[A]: 34%;
Students receiving federal loans[A]: 66%;
Graduation rate[A]: 71%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative explains to the undercover applicant that
although community college might be a less expensive place to get a
degree, community colleges make students spend money on classes that
they do not need for their career. However, this school also requires
students to take at least 36 credit hours of non-business general
education courses;
* Admissions representative did not disclose the graduation rate after
being directly asked. He told the undercover applicant that it is a
"good" graduation rate. The college's Web site also did not provide
the graduation rate;
* Admissions representative encouraged the undercover applicant to
enroll by asking her to envision graduation day. He stated, "Let me
ask you this, if you could walk across the stage in a black cap and
gown. And walk with the rest of the graduating class and take a degree
from the president's hand, how would that make you feel?";
Scenario 2:
* Admissions representative said the bachelor's degree would take 3.5
to 4 years to complete, but he provided a one-year cost estimate equal
to 1/5 of the required credit hours;
* Admissions representative required the undercover applicant to apply
to the college before he could talk to someone in financial aid;
* Admissions representative told the undercover applicant that almost
all of the graduates get jobs;
* Flyer provided to undercover applicant stated that the average
income for business management professionals in 2004 was $77,000-
$118,000. When asked more directly about likely starting salaries, the
admissions representative said that it was between $40,000 and $50,000.
College information and degree sought: District of Columbia - less
than 2-year, Privately owned; Certificate - Cosmetology, Barber;
Students receiving Pell Grants[A]: 74%;
Students receiving federal loans[A]: 74%;
Graduation rate[A]: Not reported;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative told the undercover applicant that the
college was accredited by "an agency affiliated with the government,"
but did not specifically name the accrediting body;
* Admissions representative told the undercover applicant that all
graduates get jobs. He stated that the president of the college would
employee students in his local salons if they did not find work
elsewhere;
Scenario 2:
* Admissions representative told our undercover applicant that barbers
can earn $150,000 to $250,000 a year, though that would be extremely
unusual. The BLS reports that 90 percent of barbers make less than
$43,000 a year. In Washington, D.C., 90 percent of barbers make less
than $17,000 per year. He said, "The money you can make, the potential
is astronomical."
College information and degree sought: Florida - 2-year, privately
owned; Associate's Degree - Radiologic Therapy;
Students receiving Pell Grants[A]: 86%;
Students receiving federal loans[A]: 92%;
Graduation rate[A]: 78%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative did not provide the graduation rate when
directly asked, but said it is "very high." The college's Web site
also did not provide the graduation rate;
* Admissions officer was vague about graduation rate. She told
undercover applicant that the last class had 16 people graduate, but
did not say how many started;
* Admissions representative told our prospective undercover applicant
that student loans were not like car loans because "no one will come
after you if you don't pay." In reality, students who cannot pay their
loans face fees, may damage their credit, have difficulty taking out
future loans, and in most cases, bankruptcy law prohibits a student
borrower from discharging a student loan;
Scenario 2:
* Financial aid representative suggested to the undercover applicant
that he not report $250,000 in savings reported on the FAFSA. The
representative told the applicant to come back once the fraudulent
financial information changes had been processed;
* This change would not have made the undercover applicant eligible
for grants because his income would have been too high, but it would
have made him eligible for loans subsidized by the government.
College information and degree sought: Florida - 2-year, owned by
publicly traded company; Associate's Degree - Criminal Justice;
Students receiving Pell Grants[A]: Not Reported;
Students receiving federal loans[A]: Not Reported;
Graduation rate[A]: Not Reported;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative falsely stated that the college was
accredited by the same agency that accredits Harvard and the
University of Florida;
* A test proctor sat in the test taking room with the undercover
applicant and coached her during the test;
* The undercover applicant was not allowed to speak to a financial aid
representative until she enrolled in the college;
* Applicant had to sign agreement saying she would pay $50 per month
toward her education while enrolled in college;
* On paying back loans, the representative said, "You gotta look at
it...I owe $85,000 to the University of Florida. Will I pay it back?
Probably not...I look at life as tomorrow's never promised...
Education is an investment, you're going to get paid back ten-fold, no
matter what";
* Admissions representative suggested undercover applicant switch from
criminal justice to the medical assistant certificate, where she could
make up to $68,000 per year. While this may be possible, BLS reports
90% of medical assistants make less than $40,000 per year.
Scenario 2:
* When the applicant asked about financial aid, the 2 representatives
would not answer but debated with him about his commitment level for
the next 30 minutes;
* The representative first told the undercover applicant the program
would take 18 months to complete. He later said it would take 2 years
to complete. He said that student loans would absolutely cover all
costs in this 2-year program. However, to pay for the program, the
undercover applicant would need to 1) acquire federal student loans
for 3 years, or 2) acquire private loans or pay some out of pocket to
complete the program in less than 3 years;
* The representative said paying back loans should not be a concern
because once he had his new job, repayment would not be an issue;
* The representatives used hard-sell marketing techniques;
they became argumentative, called applicant afraid, and scolded
applicant for not wanting to take out loans.
College information and degree sought: Illinois - 2-year, privately
owned; Certificate - Medical Assistant;
Students receiving Pell Grants[A]: 83%;
Students receiving federal loans[A]: 80%;
Graduation rate[A]: 70%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 2:
* Admissions representative initially provided misleading information
to the undercover applicant about the transferability of the credit.
First she told the applicant that the credits will transfer. Later,
she correctly told the applicant that it depends on the college and
what classes have been taken.
College information and degree sought: Illinois - 4-year, privately
owned; Bachelor's Degree - Psychology;
Students receiving Pell Grants[A]: Not reported;
Students receiving federal loans[A]: Not reported;
Graduation rate[A]: Not reported;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative said the bachelor's degree would take 3.5-
4 years to complete, but only provided an annual cost estimate for 1/5
of the program;
Scenario 2:
* When the undercover applicant asked about the qualification of the
professors, the only information provided about the qualifications of
the professors is that they have professional experience; Admissions
representative did not provide the graduation rate when directly
asked. Instead she said "not everyone graduates".
College information and degree sought: Pennsylvania - 4-year, owned by
publicly traded company; Bachelor's Degree - Business Administration;
Students receiving Pell Grants[A]: 47%;
Students receiving federal loans[A]: 58%;
Graduation rate[A]: 9%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative told the undercover applicant that she
should take out the maximum amount of federal loans she could, even if
she did not need all the money. She told the applicant she should put
the extra money in a high-interest savings account. While subsidized
loans do not accrue interest while a student is in college,
unsubsidized loans do accrue interest. The representative did not
disclose this distinction to the applicant when explaining that she
should put the money in a savings account;
Scenario 2:
* Admissions representative tells the undercover applicant that the
college is regionally accredited but does not state the name of the
accrediting agency. The college's Web site did provide specific
information about the college's accreditation, however;
* Admissions representative said financial aid may be able to use what
they call "professional judgment" to determine that the undercover
applicant does not need to report over $250,000 in savings on the
FAFSA;
* Admissions representative did not disclose the graduation rate after
being directly asked. He instead explained that all students that do
the work graduate. This information was available on the college's Web
site; however, it required significant effort to find the college's
graduation rate, and the college did not provide separate graduation
rates for its multiple campuses nationwide.
College information and degree sought: Pennsylvania - less than 2-
year, privately owned; Certificate - Web Page Design;
Students receiving Pell Grants[A]: 52%;
Students receiving federal loans[A]: 69%;
Graduation rate[A]: 56%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative told the undercover applicant that she has
never seen a student decline to attend after speaking with financial
aid. The admissions representative would not allow the applicant to
speak with financial aid until she enrolls in the college;
* If the undercover applicant was able to get a friend to enroll in
the college she could get an MP3 player and a rolling backpack;
Scenario 2:
* Financial aid representative told the undercover applicant that he
should have answered "zero" when asked about money he had in savings--
the applicant had reported a $250,000 inheritance;
* The financial aid representative told the undercover applicant that
she would "correct" his FAFSA form by reducing the reported assets to
zero. She later confirmed by e-mail and voicemail that she had made
the change;
* This change would not have made the undercover applicant eligible
for grants, but it would have made him eligible for loans subsidized
by the government.
College information and degree sought: Texas - 4-year, privately owned;
Bachelor's Degree - Construction Management; Visual Communications;
Students receiving Pell Grants[A]: 81%;
Students receiving federal loans[A]: 99%;
Graduation rate[A]: 54%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative did not disclose the graduation rate after
being directly asked. The college's Web site also did not provide the
graduation rate;
* Admissions representative said the program would cost between
$50,000 and $75,000 instead of providing a specific number;
Scenario 2:
* Admissions representative encouraged undercover applicant to change
the FAFSA to falsely add dependents in order to qualify for grants;
* This undercover applicant indicated to the financial aid
representative that he had $250,000 in the bank, and was therefore
capable of paying the program's $68,000 cost. The fraud would have
made the applicant eligible for $2,000 in grants per year.
College information and degree sought: Texas - 2-year, owned by
publicly traded company; Associate's Degree - Business Administration;
Students receiving Pell Grants[A]: 89%;
Students receiving federal loans[A]: 92%;
Graduation rate[A]: 34%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* Admissions representative said the program takes 18 to 24 months to
complete, but provided a cost estimate that suggests the program takes
more than 2.5 years to complete;
* Admissions representative did not disclose the graduation rate after
being directly asked. The college's Web site also did not provide the
graduation rate;
Scenario 2:
* Undercover applicant would be required to make a monthly payment to
the college towards student loans while enrolled;
* Admissions representative guaranteed the undercover applicant that
getting a degree would increase his salary.
College information and degree sought: Texas - 2-year, privately owned;
Associate's Degree - Respiratory Therapy;
Students receiving Pell Grants[A]: 100%;
Students receiving federal loans[A]: 100%;
Graduation rate[A]: 70%;
Encouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior:
Scenario 1:
* The undercover applicant was not allowed to speak to a financial aid
representative until he enrolled in the college;
* Admissions representative misrepresented the length of time it would
take to complete the degree. He said the degree would take 2 years to
complete but provided a cost worksheet that spanned 3 years;
Scenario 2:
* The undercover applicant was told he was not allowed to speak to a
financial aid representative until he enrolled in the college. After
refusing to sign an enrollment agreement the applicant was allowed to
speak to someone in financial aid;
* Admissions representative told undercover applicant that monthly
loan repayment would be lower than it actually would.
Source: GAO undercover visits and Department of Education.
[A] This information was obtained from the Department of Education
National Center for Education Statistics.
[End of table]
[End of section]
Footnotes:
[1] For-profit colleges are institutions of post-secondary education
that are privately-owned or owned by a publicly traded company and
whose net earnings can benefit a shareholder or individual. In this
report, we use the term "college" to refer to all of those
institutions of post-secondary education that are eligible for funds
under Title IV of the Higher Education Act of 1965, as amended. This
term thus includes public and private nonprofit institutions,
proprietary or for-profit institutions, and post-secondary vocational
institutions.
[2] $26 billion is the aggregate market capitalization of the 14
publicly traded corporations on July 14, 2010. In addition, there is a
15th company that operates for-profit colleges; however, the parent
company is involved in other industries; therefore, we are unable to
separate its market capitalization for only the for-profit college
line of business, and its value is not included in this calculation.
[3] The Federal Supplemental Educational Opportunity Grant (FSEOG),
Federal Work-Study (FWS), and Federal Perkins Loan programs are called
campus-based programs and are administered directly by the financial
aid office at each participating college. As of July 1, 2010 new
federal student loans that are not part of the campus-based programs
will come directly from the Department of Education under the Direct
Loan program.
[4] A certificate program allows a student to earn a college level
credential in a particular field without earning a degree.
[5] Regardless of income and assets, all eligible students attending a
Title IV college are eligible to receive unsubsidized federal loans.
The maximum amount of the unsubsidized loan ranges from $2,000 to
$12,000 per year, depending on the student's grade level and on
whether the student is considered "dependent" or "independent" from
his or her parents or guardians.
[6] GAO previously investigated certain schools' use of ability-to-
benefit tests. For more information, see GAO, Proprietary Schools:
Stronger Department of Education Oversight Needed to Help Ensure Only
Eligible Students Receive Federal Student Aid, [hyperlink,
http://www.gao.gov/products/GAO-09-600] (Washington, D.C.: August 17,
2009).
[7] [hyperlink, http://www.gao.gov/products/GAO-09-600].
[8] 20 U.S.C. § 1092 and 34 C.F.R. §§ 668.41 -.49.
[9] 20 U.S.C. § 1094 (c) (3) and 34 C.F.R. §§ 668.71 - .75.
Additionally, Education has recently proposed new regulations that
would enhance its oversight of Title IV eligible institutions,
including provisions related to misrepresentation and aggressive
recruiting practices. See 75 Fed. Reg. 34,806 (June 18, 2010).
[10] Depending on the value of the gift, such a transaction may be
allowed under current law. Federal statute requires that a college's
program participation agreement with Education include a provision
that the college will not provide any commission, bonus, or other
incentive payment based directly or indirectly on success in securing
enrollments or financial aid to any persons or entities engaged in any
student recruiting or admission activities. However, Education's
regulations have identified 12 types of payment and compensation plans
that do not violate this statutory prohibition, referred to as "safe
harbors". Under one of these exceptions, schools are allowed to
provide "token gifts" valued under $100 to a student provided the gift
is not in the form of money and no more than one gift is provided
annually to an individual. However, on June 18, 2010 the Department of
Education issued a notice of proposed rulemaking that would, among
other things, eliminate these 12 safe harbors and restore the full
prohibition.
[11] Of the 436 calls, not all resulted in a voice message in which a
representative identified the school he or she was calling from. For
those callers who did not leave a message, GAO attempted to trace the
destination of the caller. In some cases GAO was not able to identify
who placed the call to the student.
[End of section]
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